In my December ’19 update, I mentioned that we were aiming to FIRE in 5 years time in 2025.
I was asked in the comments about my FIRE number but due to my laziness I didn’t reply. I appreciate comments on the blog and need to make the effort to respond when I get them.
Anyway this post should answer any of those questions and show my plan and reasons to achieve FIRE in 5 years.
Recent events have made me determined to drastically scale down work when I reach 55 years old and I can access my SIPP Pension. I will not retire fully as I will continue to manage my rental properties which I enjoy doing.
A number of people who we know, in our age group or not much older, have recently either become ill or died suddenly. This has brought home the realisation that health is not guaranteed and we don’t want to be working longer than we have to.
Also, our parents are now in their 70’s, and we have been aware of how they have slowed down in recent years, with various health issues starting to appear.
My thinking now is that we need to make the most of the 15 year period between ages 55 and 70, a period when we are most likely to be mobile and healthy enough to enjoy it to the full. Anything after 70 is a bonus.
What FIRE number am I aiming to hit in 5 years? I am looking to withdraw £50k a year before tax from my pot. Using a 4% withdrawal rate, this means I need £1.25 million!
My current net worth is £541k so how is it possible to get to that number?
Assuming a 7% rate of growth on my current net worth this would only give me around £800k net worth in 5 years. Although I will be making further contributions to my investments, for this exercise I will use the £800k figure.
There are two other items that I don’t currently include in my net worth. These are a small DB pension worth £4k a year and, of course, the elephant in the room, the State Pension, which for us as a couple will be worth £17.5k a year as we will have full NI contributions.
Should the State pension be included in your Net Worth? This point was recently discussed by weenie at Quietly Saving, and GFF at Gentlemans Family Finances.
Weenie includes the State pension as part of her plans whereas GFF doesn’t. Partly due to being a similar age, I am firmly in weenie’s camp, and include the state pension in my plans.
The risk/reward of working a number of extra years, possibly into my sixties, just in case the state pension changes, is too much. If things do change I’ll cross that bridge when it comes.
One of the top regrets of people who have achieved FIRE is not pulling the trigger earlier when they could have done.
Using a 4% withdrawal rate, the £4k DB pension is equivalent to £100k net worth, and £17.5k State pension is equivalent to £437k net worth. These added together theoretically adds £537k to my net worth.
In total then my projected FIRE number at 55 is £800k + £537k = £1.37 million, which if I take £50k per year gives a withdrawal rate of 3.64%.
A 4% withdrawal gives £54,800. The tax on this would be around £6k at basic rate, so we would just be shy of £50k net income, ignoring other tax-saving measures.
Just got to make sure there is enough in my SIPP and rental income combined to withstand the higher withdrawals until the state pension kicks in. I will need about £500k in my SIPP to ensure it never runs out.
So that is my plan.
I’m going for it!
Your main home is £320,766 of your current net worth. How does this fit with taking a 4% withdrawal against your total net worth in five year’s time?
Hi gm
The plan is if I can get the SIPP up to about £500k, due to the mix of rental income and the amount I have to draw from the SIPP means that hopefully most of the capital is preserved in the SIPP over the drawdown period. This means that I won’t have to draw on the capital tied up in my main home. We will probably downsize at some point anyway if the kids ever decide to leave home!
You’ve included the state pension in your net worth projection for age 55, but the pension isn’t accessible at that age. The 4% withdrawal would thus deplete your other capital faster. You might be better modelling this without the state pension and changing the withdrawal rate once you can access it?
Hi Steve
Yes, it does rely on my other capital until I can draw on the state pension, but modelling out my figures from what rental income I get and what I would need to draw from my SIPP showed that my capital remains relatively intact. If it looked like my capital was starting to reduce too quickly I could always reduce my withdrawals as there is plenty of discretionary spending in there.
cheers
Have you factored in inflation to your targets? E.g. a nominal 7% growth rate in investment returns is likely 5% or lower in real, inflation-adjusted terms. Looking at it another way, a £1.25m goal 5 years from now when present valued to today (assuming a 2% headwind for inflation) is £1.13m
Hi Dan
In a word no. I’ve ignored inflation with regard to my FIRE number. I’m just looking to get as high a net worth as possible in that time and the final figure will be what it will be.
cheers
Nice post, Mr FU – I think I need to do something similar!
Hi weenie
Thanks, look forward to reading yours.
Very interesting fiúk and interesting you include your house in your figures.
If I include my property I’m very similar numbers wise to you. Outside of my house I’m st about 350k now.
I’ve decided to go interest only on my mortgage for a bit to boost the amount outside of property. My plan is to get my isa savings to 200k then use the yield to start chipping away at my mortgage. Means I potentially have funds for btl and other investments
Also interesting that that could grow to 800k in next 5 years that’s bonkers. The snowball at work
Loved the detailed breakdown of your FIRE math in this post. I hadn’t considered that the state pension is the equivalent to a £437k pot!
But being 32, the SP seems so long away and is not something I consider in my FIRE calcs. When I eventually get it (66? Who knows what age in another 30 years) it will be a nice, little bonus.